California Dangles Bonuses for Nursing Homes That Add Staff

This story was originally published by Kaiser Health News.

SACRAMENTO, Calif. — California is revamping how it rewards nursing homes to get them to improve patient care.

Rather than limit bonuses to top-performing facilities, the state will hand out additional Medicaid payments next year to nursing homes — even low-rated ones — that hire additional workers, reduce staff turnover, or improve quality of care. Facilities will be scored on their performance so facilities that do more will earn larger bonuses. And to ensure an acceptable level of care, the state will sanction facilities that fail to meet clinical and quality standards for patients.

The switch is part of a multipronged effort by Gov. Gavin Newsom and state lawmakers to entice nursing homes to do better after the devastating toll of covid-19. Facilities that improve working conditions for their staff will also earn higher daily Medicaid payments.

“When you’re investing in the workforce, then you have the appropriate levels of care to provide services,” said Lindy Harrington, deputy director at the Department of Health Care Services, which administers Medi-Cal, the state’s Medicaid insurance program for people with low incomes and disabilities.

Patient advocates and industry officials described the changes as an improvement, but they expressed skepticism about whether they would work. They said the bonuses fall short of what’s needed to address chronic understaffing and the closure of rural facilities.

Last year, lawmakers allocated $280 million for the bonus program — just a fraction of the more than $6 billion that nursing homes take in every year from Medi-Cal. The safety-net health program insures two-thirds of nursing home residents in the state. Meanwhile, the money nursing homes could get by improving working conditions for their employees is comparable to temporary funding that facilities received from the state during the pandemic — which means funding essentially remains flat overall.

“The overwhelming majority of the money goes to facilities regardless of what their quality looks like,” said Tony Chicotel, an attorney with California Advocates for Nursing Reform, a nonprofit that represents long-term care residents. “The worst performers will still get paid about the same as the best performers.”

Newsom and legislators adopted the new payment structures in a state budget bill last year, explicitly calling on regulators to leverage taxpayer funding in order to improve pay and working conditions for staffers who feed, bathe, dress, and ensure the well-being of elderly and frail patients at the state’s 1,200 nursing homes.

But the pandemic had already exposed deep, systemic problems at nursing homes. While older adults have a heightened risk of dying of covid, the coronavirus spreads more easily in institutional settings — and some studies have found that nursing homes with fewer staff members had significantly higher covid infection and death rates.

According to an industry official, California’s nursing homes care for 350,000 residents each year. More than 10,000 nursing home residents have died of covid since January 2020, about a tenth of Californians killed by the virus so far.

Nationwide, at least 163,538 had died of covid in U.S. nursing homes as of Jan. 22, according to the latest data from the Centers for Medicare & Medicaid Services.

In an August memo, CMS Deputy Administrator Daniel Tsai encouraged states to use Medicaid money to improve training and staffing at nursing homes. The federal agency is also reviewing mandatory staffing levels.

In California, regulators are acting on the belief that increased staffing and better working conditions will reduce patient injuries and emergency room visits. Hence, facilities that make improvements in those areas will qualify for boosted Medi-Cal payments. Guidelines are expected to be drafted this year.

Democratic lawmakers, many with ties to labor, suggested the administration consider rewarding facilities that unionize or pay a prevailing wage. The inclusion of those incentives in the bill was a win for labor, since only 20% of California nursing home workers belong to a union.

Industry officials have largely shrugged at the state’s incentives. They said Medi-Cal payments are lower than what they receive from Medicare and private health plans.

“This is not going to move the needle fundamentally as long as the state continues to disinvest so badly into nursing homes,” said Craig Cornett, CEO of the California Association of Health Facilities. “Facilities desperately want more staff. They want to hire more staff, but they are paid so poorly through Medi-Cal that that’s virtually impossible.”

Harrington, who is implementing the nursing home rules, called the funding level “appropriate.”

This isn’t the only change the state has made to get nursing homes to hire more workers.

Lawmakers rewrote complicated Medi-Cal formulas last year so that nursing homes have an incentive to pay workers more. Under the change, facilities can collect up to 5% more in labor costs every year through 2026, compared with a 2% increase for administrative and other non-labor costs. That amounts to an estimated $473 million more for nursing homes in the next fiscal year, according to the Department of Health Care Services.

Labor is also pushing for a statewide $25 minimum wage for health support staffers, who include nursing home workers. In 2022, California nursing assistants earned an average $20.38 an hour across the health industry, according to the state Employment Development Department.

“We’re really making sure the needs of a patient are met,” said Arnulfo De La Cruz, president of Service Employees International Union Local 2015, which represents nursing home workers and in-home caregivers. “And a big part of that is addressing the needs of workers who deserve to work with dignity, to be well paid, to have benefits, and certainly not to be overly taxed and stressed out physically because they’re caring for too many patients.”

This story was produced by KHN, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

Subscribe to KHN's free Morning Briefing.